Frenzy over first-year associate salaries
ripples through Oregon – but only to a point
By Cliff Collins

Big New York City law firms set the
national pace for salary raises, and first-year associate salaries are
a standard measure for the legal economy all over.

These two axioms were in stark evidence
in the first part of 2007, as Big Apple giants kicked off the new year
by shaking things up more than they have been in several years.

Many large firms hiked starting pay
to $160,000 — up by $15,000 to $25,000 from a year ago — and
the falling dominos reshaped the landscape within a week.

Firms in other large markets, and firms across the country that have
branches in the city, quickly followed suit. The West Coast, the Northwest
and Oregon have not been spared, either.

"It definitely affects us," says
John A. Cameron, hiring partner for Davis Wright Tremaine. "There’s
a ripple effect to bigger cities first. It radiates to big firms everywhere." Davis
Wright has other offices in New York, Los Angeles, Washington, D.C., San
Francisco, Seattle, Bellevue, Anchorage and Shanghai, China. The firm’s
salaries are not the same in each city, but all are affected when New York
moves up first-year compensation, he says.

Large firms here, whether they have
East Coast offices or not, compete for much the same pool of top law school
graduates as do New York and other metropolises.

"A law firm’s best assets are its lawyers," says
Steven M. Hedberg, Portland managing partner for Perkins Coie. "We’re
always competing for the best and the brightest. We have felt New York." When
New York made changes, Perkins did, too, with raises retroactive to Jan.
1. "If you’re competitive nationally, you’re competing with
New York, Los Angeles, Seattle. The new lawyers are looking at all the markets," he
says.

"It does impact things," agrees Mark A. Long, managing
partner of Schwabe, Williamson & Wyatt. "These are salaries that
are driven by firms that have significant numbers (of lawyers). The number
of graduates attracted to these large firms has risen, while the overall
number has not. Law students here have options they might not have in the
past."

The number of associates at "National Law Journal 250" firms
increased 76 percent from 1996 to 2006, while the number of law school graduates
climbed just 7 percent during that period.

What’s more, the increase at the first-year level necessarily
affects the salaries for the rest of the firm. "An increase for first-years
results in an increase for standards for all levels," says Davis Wright’s
Cameron. Obviously, it would create a lot of internal turmoil if firms didn’t
adjust others’ salaries, he says.

The effect also is felt when a Portland firm based in a larger
city than any in the Northwest raises salaries at all of its offices. New
York starting salaries were $135,000 to $145,000, but since January many
now are $160,000. Big California firms moved up first-year pay to $145,000
or more. Heller Ehrman, based in San Francisco, raised its Seattle office’s
first-years from $120,000 to $130,000, retroactive to Jan. 1.

Portland Salaries Rise
Portland still is well behind those numbers,
but has upped first-year pay all the same. Last year, Perkins Coie was paying
$95,000, "with
a guaranteed bonus of $10,000," says Hedberg. The firm’s starting
salary has gone up this year to $105,000, with a $5,000 guaranteed minimum
bonus. Perkins Coie starts giving bonuses at 1,850 billable hours, including
50 pro bono hours. Associates can make larger bonuses if they increase hours
and make "high-quality, meaningful contributions," he says.

In Perkins Coie’s Seattle office, first-year associates
who bill the minimum 1,850 hours will see a rise from $110,000 last year
to $120,000. For associates who work 2,000 billable hours per year, compensation
will be $140,000.

Wally E. Van Valkenburg, managing partner of the Portland office
of Stoel Rives, says the firm on Jan. 1 raised first-year salaries from $95,000
to $105,000, "based on our assessment of the market conditions. We try
to see what our markets are like. We have traditionally been lower than the
California markets." He says that trying to control costs and not pass
along costs to clients is "a tough situation."

"We try to set our rates in light of what we know of the
competition. Our competition is in different regions. We also have to keep
in mind that we can’t charge rates that our clients don’t consider
reasonable."

Stoel Rives’ billable hours target has been 1,800 the
past five years for associates to qualify for a 10 percent bonus of
their base salary. "Some who don’t still get a discretionary bonus," and
the firm hasn’t changed this formula in relation to the raise in salaries,
Van Valkenburg says.

What the biggest firms such as Perkins Coie and Stoel Rives
do has more of an effect on smaller large firms than what New York does,
says Schwabe’s Long. "We compete directly" with those Portland
firms for the same people, he says.

Schwabe’s starting salaries for this fall will be $96,000 "or
a little over," subject to review, he says. "We always want to
keep an eye on what our markets are doing."

Davis Wright’s Cameron says, "We increased fourth-quarter
last year for this coming year. There is certainly a rising tide on salaries,
and we find ourselves constantly reassessing."

Erica Daley, chief financial officer of Miller Nash, says Portland
firms that have offices in New York and other cities have felt pressure to
raise salaries in all their firms. Daley says her firm gets the same pressure
from within, with associates asking, "Why are you paying more to Seattle
lawyers when I am doing the same amount of work?"

She answers that firms have to pay associates based on the
market they are in, because rates charged to clients are lower in smaller
cities than large.

Associate-level billing rates haven’t increased to clients
at the same rate as have associate salaries, she adds. "We have increased
those salaries for the last several years. The last two fiscal years have
been larger increases." In addition, "Clients are consolidating
the number of firms they’re working with. We’re getting squeezed
from both sides."

Whither Oregon’s Competitive Advantages?
At the same time,
some new law school graduates may perceive the traditional advantages of
working in Oregon as eroding. Law firms here long have touted as selling
points the quality of life, the opportunity for advancement to partner, the
comparatively lower number of billable-hour requirements, and the opportunity
for better work-life balance.

But if compensation keeps rising, hourly expectations may follow,
as they have in larger markets. Right now, first-year associates in the Northwest
often are required to work between 1,800 and 1,900 billable hours annually,
while large firms in New York expect first-years to work as much as 2,200
to 2,300 a year, says Linda Green Pierce, president of Northwest Legal Search.

But among "the pressures that happen to firms when salaries
go up are that the partners feel associates should bill more hours for those
dollars. Associates may feel they are already billing enough, or say, ‘We
didn’t come to Portland, or remain in Portland after law school, to
bill more hours,’" she says.

Green Pierce adds that Portland’s continued increases
in home costs have not helped the equation. New associates coming to Oregon
in many instances will want to buy a home. With the median home price in
January for Portland at $275,000, as opposed to even a year ago, when it
was around $240,000, associates are not as able to buy a house on Portland
salaries, she says. Moreover, many graduates leave school with large debts
to repay, and may look twice at markets where they can make higher salaries.

Stoel Rives’ Van Valkenburg says some new lawyers "have
to make hard choices." They may have to take jobs with salaries of $20,000
to $30,000 more to help pay off their debts. "Then we may see them in
a couple of years," he says.

Perkins Coie’s Hedberg and others contend that if the
cost of living in Oregon versus New York is taken into account, "the
compensation is roughly the same."

Moreover, some national analysts have pointed out that raising
salaries, then expecting more hours in return, is exactly what young associates
do not seek. Instead, many have rebelled at having to work night and day,
and feel they have no life outside of the office.

"Certainly one of the attributes we use as a selling point
is, we try to offer a balance of life," says Davis Wright’s Cameron. "Turnover
is endemic to the industry, a reaction across the country to the demands
placed on them. We, by being more moderate in demands, have an edge in that
lifestyle comparison."

Schwabe’s Long concurs. "Some people with pretty
good talent are leaving New York City," he says. Portland is within
a five-hour drive of virtually any outdoor recreational opportunity imaginable. "That
certainly has appeal to people, people with affinity for place."

Better Life Balance
Quality of life as a recruiting pitch is
of even greater necessity for Oregon firms outside the Portland area. Gerry
Gaydos, of Eugene’s
Gaydos, Churnside & Balthrop, says the factors that attract lawyers to
practice in smaller areas — or deter them from doing so — remain
constant, and serve as a counterbalance to what is happening with salaries
in Portland or New York.

"We really sell lifestyle," says Gaydos, an Ohio
native who sought out a small community in which to practice. The hourly
rates he and the four lawyers associated with his firm can charge in Lane
County cannot be as high as what Portland lawyers command, because local
industry could not sustain it.

But by living in a university town, "you get a lot of
the larger-city benefits without being in a larger city." Even if Gaydos’ firm
could pay lawyers top dollar, the type of candidates who would be drawn to
Eugene would have to be comfortable being more generalists than specialists. "If
they’re driven by money needs," or want to specialize as they
could in a larger firm, Eugene would not work for them, he says.

Lynn R. Nakamoto, managing shareholder of Markowitz, Herbold,
Glade & Mehlhof, a 14-lawyer boutique litigation firm in Portland, typically
doesn’t hire lawyers who are right out of law school, but looks for
midlevel associates with complex litigation experience.

"We have the opportunity to compete for experienced associates
in town and out of town. That’s where there is some effect" from
the salary-increase wave,
she says.

Big Portland firms "often pay large initial salaries to
compete, but the raises get pretty small" after the first year, says
Nakamoto. "Others of us are able to take advantage of that experience" if
associates later decide to go to a different firm.

"Work and personal-life balance — sometimes small
firms will offer that and more experience in the courtroom, and more well-rounded
litigation experience." Associates take into account a host of factors
when deciding where to work, including the people they’re going to
work with and the kind of cases they’re going to get, she says.

The Immediate Future
Salary pressures likely will get worse
before they get better. Ward Bower of Altman Weil told Law.com that first-year
salary increases are due, in large part, to an imbalance in the supply and
demand of law school graduates: "‘AmLaw 200’ firms will
add an average of 50 new associates this year, or a total of 10,000. Of about
40,000 law school graduates each year, only a small percentage of that number
constitute the best students top firms seek."

"It’s the continual competition for the best and
the brightest," adds Northwest Legal Search’s Green Pierce. "Only
so many of those lawyers graduated in the top of their class, and only so
many of them are willing to work in a law firm of hundreds or thousands of
lawyers and bill thousands of hours a year. The competition for those people
is keen."

Many who finish law school never go into private firms, she
points out. A good percentage choose to practice in public defenders’ or
district attorneys’ offices, or in city, county, state or federal government.
Others go into large corporations’ legal departments as entry in-house
counsel. Some may go into private banking or become a lawyer in a private
equity fund, securities brokerage house, venture-capital firm or hedge fund.
A few graduates do not practice law at all.

"Some who are highly placed academically, and who could
easily go to Big Law, go instead to Wall Street," Green Pierce says. "Wall
Street has been paying a lot more money than even the largest and highest-paying
law firms."

Altman Weil’s Bower says the big New York firms will
continue to boost salaries in the next few years, a phenomenon that he thinks
will create several tiers of law firms, where the highest-paying New York
firms will get the top talent and other firms will realize they can’t
continue to match the market leaders.

Firms’ unwillingness to reduce partners’ profits,
in addition to client concerns about salary increases, eventually will create
firm tiers nationally and by market in terms of compensation, he predicts.

ABOUT THE AUTHORCliff Collins is a Portland-area freelance writer and a frequent contributor to the Bulletin.